Security i	E(Ri)	bi1	bi2
A	6.6%	0.2	-0.1
B	12.75%	0.3	0.5
C	9.9%	-0.2	0.6

a. What is the equation of the APT? (0.06, 0.075, 0.09)

b. What is the expected return on a portfolio of B and C with zero sensitivity to factor 1?

c. Suppose there is a security, D, with sensitivity of zero to factor 1, and 0.2 to factor 2, and expected return of 9.675%, will you buy it? Why?

d. An investor believes that the expected returns above (table) come from the CAPM instead of the APT but agrees with the risk-free rate estimated above. The analyst uses a security B to demonstrate his point. What is his estimate of the market portfolio assuming the beta of B is 0.8?